Question 1

If central bankers raise the interest rate, the asset-price channel of monetary policy implies:

Accepted Answer

A)  stock prices will decrease. 
B)  stock prices will remain the same but bond prices will increase. 
C)  bond prices will remain flat. 
D)  stock prices will increase and bond prices will remain flat. 
A)  stock prices will decrease. 
B)  stock prices will remain the same but bond prices will increase. 
C)  bond prices will remain flat. 
D)  stock prices will increase and bond prices will remain flat. A

Question 2

A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to:

Accepted Answer

A)  set a target of zero inflation. 
B)  keep the monetary base fixed. 
C)  set a higher inflation target. 
D)  target a nominal interest rate of zero. 
A)  set a target of zero inflation. 
B)  keep the monetary base fixed. 
C)  set a higher inflation target. 
D)  target a nominal interest rate of zero. C

Question 3

Some people who believe monetary policymakers should not address equity and property price bubbles argue their position based on:

Accepted Answer

A)  their belief that government should stay out of private matters. 
B)  the policymakers lack experience with financial markets. 
C)  price bubbles are virtually impossible to identify when they are developing. 
D)  all of the answers given are correct. 
A)  their belief that government should stay out of private matters. 
B)  the policymakers lack experience with financial markets. 
C)  price bubbles are virtually impossible to identify when they are developing. 
D)  all of the answers given are correct. C

Question 4

As interest rates rise the supply of loans may decrease because:

Accepted Answer

A)  borrowers net worth rises. 
B)  demand for loans falls. 
C)  lenders are increasingly on the lookout for adverse selection. 
D)  all of the answers given are correct. 
A)  borrowers net worth rises. 
B)  demand for loans falls. 
C)  lenders are increasingly on the lookout for adverse selection. 
D)  all of the answers given are correct.

Question 5

All but which of the following could be adjusted as a means of deflating asset price bubbles:

Accepted Answer

A)  tariffs 
B)  capital requirements 
C)  capital surcharges 
D)  fees for insuring the capital of banks 
A)  tariffs 
B)  capital requirements 
C)  capital surcharges 
D)  fees for insuring the capital of banks

Question 6

Discuss the impact of the evolving financial system on the bank-lending channel of monetary policy transmission? Evaluate what that is likely to mean for future changes in the target federal funds rate.

Accepted Answer

The shift away from bank financing and t

Question 7

Each of the following is a transmission channel of monetary policy, except:

Accepted Answer

A)  the household net worth channel. 
B)  the Treasury Securities channel. 
C)  the asset-price channel. 
D)  the exchange-rate channel. 
A)  the household net worth channel. 
B)  the Treasury Securities channel. 
C)  the asset-price channel. 
D)  the exchange-rate channel.

Question 8

Equity and property price bubbles are commonly associated with periods when:

Accepted Answer

A)  financial assets are undervalued. 
B)  financial asset prices reflect the book value of companies. 
C)  financial asset prices are well above what seems to be a reasonable present value estimate of earnings. 
D)  the earnings that companies report are overstated. 
A)  financial assets are undervalued. 
B)  financial asset prices reflect the book value of companies. 
C)  financial asset prices are well above what seems to be a reasonable present value estimate of earnings. 
D)  the earnings that companies report are overstated.

Question 9

Increases in the real interest rate will result in a(n):

Accepted Answer

A)  increase in net exports because it will lead to a depreciation of the dollar. 
B)  decrease in net exports because it will lead to a depreciation of the dollar. 
C)  increase in net exports because it will lead to an appreciation of the dollar. 
D)  decrease in net exports because it will lead to an appreciation of the dollar. 
A)  increase in net exports because it will lead to a depreciation of the dollar. 
B)  decrease in net exports because it will lead to a depreciation of the dollar. 
C)  increase in net exports because it will lead to an appreciation of the dollar. 
D)  decrease in net exports because it will lead to an appreciation of the dollar.

Question 10

The interest-rate channel of monetary policy transmission appears to be:

Accepted Answer

A)  weak because the investment component of total spending isn't very sensitive to interest rates. 
B)  weak because the investment component of total spending is very sensitive to interest rates. 
C)  strong because the investment component of total spending isn't very sensitive to interest rates. 
D)  strong because the investment component of total spending is very sensitive to interest rates. 
A)  weak because the investment component of total spending isn't very sensitive to interest rates. 
B)  weak because the investment component of total spending is very sensitive to interest rates. 
C)  strong because the investment component of total spending isn't very sensitive to interest rates. 
D)  strong because the investment component of total spending is very sensitive to interest rates.

Question 11

During the financial crisis of 2007-2009 which of the following countries experienced a decline in real GDP roughly twice that of the United States?

Accepted Answer

A)  Canada 
B)  United Kingdom 
C)  Japan 
D)  Turkey 
A)  Canada 
B)  United Kingdom 
C)  Japan 
D)  Turkey

Question 12

Why can't the nominal interest rate be negative?

Accepted Answer

Investors can always hold cash. Since ca

Question 13

Identify at least three effects that could result when the central bank changes its balance sheet that can impact the economy.

Accepted Answer

Changes in the real interest rate that w

Question 14

All but which of the following is a reason policymakers are concerned about the strength of the rebound from the 2007-2009 financial crisis:

Accepted Answer

A)  banks would make credit expensive and difficult to obtain. 
B)  investors would be cautious about buying securitized assets. 
C)  households would prefer to save more and borrow less. 
D)  the pace of technological change would slow. 
A)  banks would make credit expensive and difficult to obtain. 
B)  investors would be cautious about buying securitized assets. 
C)  households would prefer to save more and borrow less. 
D)  the pace of technological change would slow.

Question 15

Each of the following is a transmission channel of monetary policy, except:

Accepted Answer

A)  the balance-sheet channel. 
B)  the tax-impact channel. 
C)  the asset-price channel. 
D)  the exchange-rate channel. 
A)  the balance-sheet channel. 
B)  the tax-impact channel. 
C)  the asset-price channel. 
D)  the exchange-rate channel.

Question 16

Between September 2007 and December 2008, the FOMC reduced the target federal funds rate 5.25 percentage points toward zero. A reason for this was that the FOMC:

Accepted Answer

A)  was acting preemptively. 
B)  feared over stimulating the economy. 
C)  was taking a wait and see approach to previous cuts. 
D)  was feeling political pressure to act. 
A)  was acting preemptively. 
B)  feared over stimulating the economy. 
C)  was taking a wait and see approach to previous cuts. 
D)  was feeling political pressure to act.

Question 17

Decreases in the real interest rate will result in a(n):

Accepted Answer

A)  increase in net exports because it will lead to a depreciation of the dollar. 
B)  decrease in net exports because it will lead to a depreciation of the dollar. 
C)  increase in net exports because it will lead to an appreciation of the dollar. 
D)  decrease in net exports because it will lead to an appreciation of the dollar. 
A)  increase in net exports because it will lead to a depreciation of the dollar. 
B)  decrease in net exports because it will lead to a depreciation of the dollar. 
C)  increase in net exports because it will lead to an appreciation of the dollar. 
D)  decrease in net exports because it will lead to an appreciation of the dollar.

Question 18

The additional capital requirements put in place following the banking crisis of the 1980s led to a:

Accepted Answer

A)  quick rebound in the willingness and ability of banks to make loans. 
B)  further slowdown in bank lending. 
C)  period of rapid economic growth in the early 1990s. 
D)  prolonged economic slowdown lasting much of the 1990s. 
A)  quick rebound in the willingness and ability of banks to make loans. 
B)  further slowdown in bank lending. 
C)  period of rapid economic growth in the early 1990s. 
D)  prolonged economic slowdown lasting much of the 1990s.

Question 19

Increases in a borrower's net worth:

Accepted Answer

A)  reduces the problem of moral hazard. 
B)  lowers the information costs of lending. 
C)  reduces the problem of adverse selection. 
D)  all of the answers given are correct. 
A)  reduces the problem of moral hazard. 
B)  lowers the information costs of lending. 
C)  reduces the problem of adverse selection. 
D)  all of the answers given are correct.

Question 20

The Federal Reserve's surveys of bank loan officers can help the Fed determine whether:

Accepted Answer

A)  a drop in the quantity of loans granted resulted from fewer applications or a tightening of credit standards. 
B)  an increase in the quantity of loans granted resulted from fewer applications or a tightening of credit standards. 
C)  climbing interest-rate spreads are the result of more borrowers or fewer loans being granted. 
D)  an increase in the quantity of new loans was due to a decrease in supply or an increase in demand. 
A)  a drop in the quantity of loans granted resulted from fewer applications or a tightening of credit standards. 
B)  an increase in the quantity of loans granted resulted from fewer applications or a tightening of credit standards. 
C)  climbing interest-rate spreads are the result of more borrowers or fewer loans being granted. 
D)  an increase in the quantity of new loans was due to a decrease in supply or an increase in demand.

Exam 23: Modern Monetary Policy and the Challenges Facing Central Bankers

If central bankers raise the interest rate, the asset-price channel of monetary policy implies:

A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to:

Some people who believe monetary policymakers should not address equity and property price bubbles argue their position based on:

As interest rates rise the supply of loans may decrease because:

All but which of the following could be adjusted as a means of deflating asset price bubbles:

Discuss the impact of the evolving financial system on the bank-lending channel of monetary policy transmission? Evaluate what that is likely to mean for future changes in the target federal funds rate.

Each of the following is a transmission channel of monetary policy, except:

Equity and property price bubbles are commonly associated with periods when:

Increases in the real interest rate will result in a(n):

The interest-rate channel of monetary policy transmission appears to be:

During the financial crisis of 2007-2009 which of the following countries experienced a decline in real GDP roughly twice that of the United States?

Why can't the nominal interest rate be negative?

Identify at least three effects that could result when the central bank changes its balance sheet that can impact the economy.

All but which of the following is a reason policymakers are concerned about the strength of the rebound from the 2007-2009 financial crisis:

Each of the following is a transmission channel of monetary policy, except:

Between September 2007 and December 2008, the FOMC reduced the target federal funds rate 5.25 percentage points toward zero. A reason for this was that the FOMC:

Decreases in the real interest rate will result in a(n):

The additional capital requirements put in place following the banking crisis of the 1980s led to a:

Increases in a borrower's net worth:

The Federal Reserve's surveys of bank loan officers can help the Fed determine whether:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

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